Tax credits, at both the federal and state levels, directly offset an individual or business’ tax bill for the year. Tax credits are often part of a package deal when it comes to policymaking: tax deductions, tax incentives, and tax “breaks” are all closely associated with tax credits. It is often counterintuitive to think that lowering the tax burden of a business or individual through tax credits is a bad thing; however, as research shows, tax credits (or, on a larger scale, tax incentives), violate the principles of sound tax policy. Instead, policymakers should aim for tax policy that is equitable, simple, and stable. This is beneficial for both taxpayers and government.

This Guide briefly discusses tax policy and provides Alabama policymakers with a framework for making tax policy decisions that ensure fair and stable tax revenue for the state, as well as a minimal impact on families and businesses.

Issue Snapshot:

—Tax credits, at both the federal and state levels, directly offset an individual or business’ tax bill for the year.

—As research shows, tax credits (or, on a larger scale, tax incentives), violate the principles of sound tax policy.

—Instead, policymakers should aim for tax policy that is equitable, simple, and stable. This is beneficial for both taxpayers and government.

Recommendations:

—To eliminate tax credits without further harming individuals and businesses’ bottom lines, state and local tax rates should be lowered and applied to a broader taxpayer base.

—Alabama policymakers should consider simplifying the tax code and providing an attractive tax regime for all businesses looking to locate here.

—If tax incentives must be offered, which they currently are, Alabama must establish reporting requirements. This increases transparency in the tax code.

DOWNLOAD REPORT


MORE ON Fiscal Policy

Tax Incentives: Not Always the Answer for Alabama’s Economic Struggles

Last month, the state rejoiced with news that Alabama would be the home of a new Toyota-Mazda plant. The plant is expected to bring over 4,000 jobs and billions of dollars in net revenue to the state. With the execution of this deal, known as Project New World, state and local governments will give the […]

API Joins 36 Conservative Groups and Activists: Congress Must Stop New Obamacare Taxes

Lawmakers must act to prevent Obamacare taxes from going into effect next year, 36 conservative groups and activists wrote in a letter addressed to House Speaker Paul Ryan (R-Wis.) and Senate Majority Leader Mitch McConnell (R-Ky.). Absent Congressional action, the Obamacare health insurance tax and medical device tax will both go into effect in 2018. […]

MORE FROM Taylor Dawson

Candidates Respond to 2018 Legislative Candidate Questionnaire

Please see below for responses to the Alabama Policy Institute and Yellowhammer News Legislative Candidate Questionnaire. Listed in numerical order by district House District 4: Tom Fredricks Senate District 8: Eric Aycock House District 9: James R. Bowling House District 10: Charles A. Orr Senate District 22: Greg Albritton House District 30: Rusty Jessup Senate […]

2018 Attorney General Candidate Questionnaire: Chess Bedsole Responses

Please see below for Chess Bedsole’s responses to the 2018 Alabama Policy Institute and Yellowhammer News Attorney General Candidate Questionnaire. Submitted on May 18 at 5:04 pm View responses in PDF format here. 2018 Attorney General Questionnaire Alabama Policy Institute and Yellowhammer News ACTING PHILOSOPHY Interpreting the Law Question: Attorneys general are in the business […]

API and Yellowhammer News Release 2018 Legislative Candidate Questionnaire

Candidates for public office, once elected, bring their underlying principles and perspectives on policy issues into office with them, thus defining how they govern. It is important for citizens to know and understand the candidates for which they are voting, and Yellowhammer News and the Alabama Policy Institute (API) are partnering to bring that information […]